If you’ve been following along since the beginning then you likely have already reviewed your financial history and now understand your baseline earnings and assets (and debts) so you know what you’re dealing with. If you’re new and want to learn more read over the Financial Literary piece.
Assuming now you know your baseline, now that you have the foundation you can start to build achievable goals. Whether you’re looking to retire early, get out of debt, or buy a second property you can use the below framework to fit around your personal goals.
Begin with spotlighting what you want. Really think about what your goal is - put it on a metaphorical pedestal and create a near singular focus on ‘this’ being your goal. It sounds obsessive but without this focus it is easier to become distracted or neglect your goal. You want to create a visual space where you see your goal ahead of you.
Also to clarify, this doesn’t mean visualise yourself achieving the goal - its not about imaging how great your life would be if you retired tomorrow - it is about seeing early retirement as something that is in front of you that you are going towards.
It can be dangerous to visualise achievement of the goal because the brain takes it as a hit of accomplishment so you’re actually less motivated to get working on it, as psychologically your brain has already cashed in the reward for it. You want to identify your goal and not allow goal setting to become the proverbial finish line.
Next, most goals are made up of components. Even if your goal was to win the lottery, you’d need component steps to ‘buy lottery tickets’. Take some time to assess what you might need in order to accomplish your goal.
Does this require new skills, networking, a career change? Especially if your goals are centred around the type of work you do or want to be doing, a valuable resource using behavioural science is Think Big. Since you can see your goal in front of you, what are the steps you will take now to bring you closer to it?
Big goals are actualised by many small actions coming together.
What are your next steps?
How will you be doing them?
What’s your timescale for accountability?
How are you tracking your progress?
We aren’t done here though. Seeing the steps in front of us is important but we also need to be aware of what might become our blockers. Let’s say you want to get a second income stream. Admirable, what stands in your way? Time constraints? Tax codes? Opinions of others?
Being prepared for challenges means you’re braced for them when things get hard. People are more likely to quit when the goal becomes difficult or they’re not seeing the results they had originally seen in front of them. Things always get hard - life rarely runs on easy mode - so consider these challenges when you are setting up your goals so you are more likely to overcome them when something inevitably goes awry.
Finally, you want to be auditing your progress to ensure success. Goals like these aren’t a tick off in a day type of accomplishment.
You will be regularly working on small steps to bring you closer to your goal, and you will likely have pit-falls along the way. Set up a recurring review as to how you are progressing.
This helps you identify if you aren’t making the progress you’d planned before years go by with nothing to show for it. Being able to identify changes early helps you to replan and get yourself back on track to keep moving towards the goal in front of you.
So let’s say you’re trying to build a nest egg for retirement so you don’t need to worry about collecting pension funds and you decide to save 100k over the course of the next 5 years. You tallied up all your assets and have no cash on hand saved, so for this example, you’re starting from zero. How might you start to break this up? What are the obstacles? How will you keep yourself on track?
First, we identified what we want: 100k within 5 years. This is what we see in front of us and want we want to commit our energy to.
Next, how might we get there?
If you saved a bit less then 1700k a month, in 5 years you’d have 100k.
If you saved 1400 a month at a 7% interest rate in 5 years you’d have 100k
If you saved 2400 a month, you’d reach a 100k in about three and a half years
There is nothing to say it has to take the full five years, so a couple different breakdowns helps us to see how we might actualise this.
What are my obstacles
Can I not consistently save the money?
Can I not save enough money per month?
Do I not have an account that is generating interest?
How might we start to address these obstacles? If we don’t earn the same amount per month maybe we should look at our contributions on a quarterly scale or keep this as a review point when we audit our progress.
Perhaps you aren’t making enough to reasonably save this much. Is it a question of changing the time frame of the goal or increasing income through a part-time job? You think you could save the 1400 monthly but your current account isn’t giving you any interest - what do you need to open an account elsewhere?
Now we are starting off with a more realistic view of what this goal might present us over the next few years.
Finally if we are setting ourselves up for a five year goal - this isn’t something that needs to be reviewed on a daily basis. Think of a schedule that works for you and how you can stick to it. For instance, if I’m paid once a month, then I will send money to my interest generating account at that time and review my progress.
Setting goals is a lot like creating new habits, you need to find something you can consistently incorporate into your existing routines and keep working at and building upon in the medium to long term. Being able to set and keep goals sets you up for further success because now you are building up top of previous wins.
Happy goal creation!